Louisiana-Pacific DEF 14A 2014
Documents found in this filing:
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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March 20, 2014
On behalf of the Board of Directors, I cordially invite you to attend the Annual Meeting of Stockholders of Louisiana-Pacific Corporation. The meeting will be held on Thursday, May 1, 2014, at 4:30 p.m., local time, at LPs Corporate Headquarters, 414 Union Street, Suite 2000, Nashville, Tennessee. We look forward to personally greeting those stockholders able to be present.
At this years meeting, you will be asked to vote on (1) the election of three directors, (2) the ratification of the selection of LPs outside independent auditor, (3) an advisory vote relating to executive compensation, and (4) the approval of our Annual Cash Incentive Award Plan. Your Board of Directors unanimously recommends a vote for each of the four proposals. Action may also be taken on any other matters that are properly presented at the meeting.
Regardless of the number of shares you own, it is important that they be represented and voted at the meeting whether or not you plan to attend. Accordingly, you are encouraged to vote as soon as possible according to the instructions in the notice you received by mail or in the proxy statement.
The accompanying proxy statement contains important information about the annual meeting and your corporation. On behalf of the Board of Directors, thank you for your continued interest and support.
Curtis M. Stevens
Director & Chief Executive Officer
LP is a trademark of Louisiana-Pacific Corporation.
414 Union Street, Suite 2000
Nashville, Tennessee 37219
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
May 1, 2014
The 2014 Annual Meeting of Stockholders of Louisiana-Pacific Corporation (LP) will be held at LPs Corporate Headquarters, 414 Union Street, Suite 2000, Nashville, Tennessee, on Thursday, May 1, 2014, at 4:30 p.m. local time, to consider and vote upon the following matters:
Only stockholders of record at the close of business on February 28, 2014, are entitled to notice of and to vote at the meeting.
In accordance with the General Corporation Law of the State of Delaware, a complete list of the holders of record of LPs Common Stock entitled to vote at the meeting will be open to examination, during ordinary business hours, at LPs headquarters located at 414 Union Street, Suite 2000, Nashville, Tennessee 37219, for the ten days preceding the meeting, by any LP stockholder for any purpose germane to the meeting.
Admission to the meeting will be by ticket. The notice you received in the mail regarding the meeting will serve as your admission ticket. If you are a stockholder whose shares are held through an intermediary such as a bank or broker and you wish to attend the meeting, you may also obtain an admission ticket by presenting proof of share ownership, such as a bank or brokerage account statement, at the meeting entrance.
March 20, 2014
Whether or not you expect to attend the meeting, please vote as soon as possible according to the instructions in the notice you received by mail or, if you requested a paper copy of the proxy statement, on your enclosed proxy card. If you attend the meeting, you may withdraw your proxy and vote in person.
TABLE OF CONTENTS
On written request, LP will provide, without charge, a copy of its Form 10-K Annual Report for 2013 filed with the Securities and Exchange Commission (including the financial statements and a list briefly describing the exhibits thereto) to any record holder or beneficial owner of LPs Common Stock on February 28, 2014, the record date for the 2014 Annual Meeting, or to any person who subsequently becomes such a record holder or beneficial owner. The reports will be available for mailing in late March 2014. Requests should be mailed via first class U.S. postage to: Corporate Affairs, Louisiana-Pacific Corporation, 414 Union Street, Suite 2000, Nashville, Tennessee 37219.
Louisiana-Pacific Corporation, a Delaware corporation (LP), is soliciting proxies on behalf of its Board of Directors to be voted at the 2014 Annual Meeting of Stockholders (including any postponement or adjournment of the meeting). This proxy statement and the accompanying proxy card are being distributed to stockholders beginning on approximately March 20, 2014.
As allowed by rules and regulations of the Securities and Exchange Commission (the SEC), we are providing access to this proxy statement by Internet. You will not receive a paper copy of this proxy statement by mail unless you request it. Instead, you were sent a notice (the Notice) providing instructions on how to view this proxy statement and vote your proxy by Internet.
If you requested a paper copy of this proxy statement, a proxy card is enclosed for your use. To vote by mail, please sign, date, and return the proxy card promptly. For your convenience, a return envelope is enclosed, which requires no postage if mailed in the United States. You may indicate your voting instructions on the proxy card in the spaces provided. Properly completed proxies will be voted as instructed. If you return a proxy without indicating voting instructions, your shares will be voted in accordance with the recommendations of the Board of Directors for Items 1, 2, 3 and 4 listed in the Notice of Annual Meeting of Stockholders.
If you vote your proxy prior to the meeting, you may revoke it (1) by filing either a written notice of revocation or a properly signed proxy bearing a later date with the Secretary of LP at any time before the meeting, (2) by voting in person at the annual meeting, or (3) by following the instructions in the Notice.
If shares are held for your account in the Automatic Dividend Reinvestment Plan administered by Computershare Trust Company, N.A., all your shares held in the plan will be voted in the same manner as shares you vote by proxy. If you do not vote by proxy, the shares held for your account in the plan will not be voted.
Only stockholders of record at the close of business on February 28, 2014, are entitled to receive notice of the annual meeting and to vote at the meeting. At the record date, there were 141,260,223 shares of common stock, $1 par value (Common Stock), outstanding. Each share of Common Stock is entitled to one vote on each matter to be acted upon. A majority of the outstanding shares of Common Stock represented at the meeting will constitute a quorum. Additional information concerning holders of outstanding Common Stock may be found under the heading Holders of Common Stock below.
The Board of Directors has adopted a confidential voting policy which provides that the voting instructions of stockholders are not to be disclosed to LP except (a) in the case of communications intended for management, (b) in the event of certain contested matters, or (c) as required by law. Votes will be tabulated by independent tabulators and summaries of the tabulation will be provided to management.
Banks and brokers acting as nominees for beneficial owners are not permitted to vote proxies with regard to Items 1, 3 and 4 on behalf of beneficial owners who have not provided voting instructions to the nominee (a broker non-vote), making it especially important that, if you hold your shares in street name, you send your broker your voting instructions.
ITEM 1ELECTION OF DIRECTORS
The three nominees listed below for the Class II director positions to be voted on at the meeting are currently members of the Board of Directors. The term of office for the positions to be voted on will expire at the Annual Meeting of Stockholders in 2017.
The Board of Directors has determined that each of the nominees named below has no material relationship with LP (either directly or as a partner, stockholder, officer or director of an organization that has a relationship with LP) other than his or her service as a director of LP, and is not disqualified from being independent under the listing standards adopted by the New York Stock Exchange (the NYSE). The continuing members of the Board of Directors unanimously recommend a vote for each nominee.
E. Gary Cook, age 69, became a director of LP in 2000 and was appointed Chairman of the Board of Directors on November 1, 2004. Mr. Cook was Chairman, President and Chief Executive Officer of Witco Corporation from 1996 until his retirement in 1999. Until 1996, he was President, Chief Operating Officer, and a director of Albemarle Corporation. Prior to the spinoff of Albemarle from Ethyl Corporation, he served as President of the Chemicals Group, Senior Vice President and director of Ethyl. Mr. Cook was a long time employee and officer of the DuPont Company. Mr. Cook was selected to serve as a director because of his leadership abilities and broad experience in specialty and commodity products. The Board also believes that Mr. Cooks significant expertise in finance, capital markets and mergers and acquisitions, as well as his significant leadership capabilities in developing and maintaining a strong, diverse and independent Board with committees that work effectively to protect the integrity of the corporation as well as stockholder interests, make him particularly well-suited to serve as a director of LP. Mr. Cook serves as the non-Executive Chairman, the Chair of both the Nominating and Corporate Governance Committee and the Executive Committee, and as a member of the Finance and Audit Committee.
Kurt M. Landgraf, age 67, became a director of LP in 2005. Mr. Landgraf was President and Chief Executive Officer of Educational Testing Service from August 2000 until his retirement on December 31, 2013. Prior to that, he was Executive Vice President and Chief Operating Officer of E.I. DuPont de Nemours and Company (DuPont) where he previously held a number of senior leadership positions, including Chief Financial Officer. Mr. Landgraf is also a director of Corning, Inc. Mr. Landgraf was previously a director of IKON Office Solutions, Inc. until it merged with Ricoh Company Ltd. on October 31, 2008. He has chaired the National Pharmaceutical Council, United Way of Delaware, the Delaware Association for Rights of Citizens with Mental Retardation, and Delaware CarePlan. He recently completed a term as President of the National Consortium for Graduate Degrees for Minorities in Engineering and Sciences, Inc. Mr. Landgraf was selected to serve as a director because he possesses valuable financial expertise and operations skills and experience, represented by his positions as the Chief Financial Officer and Chief Operating Officer of DuPont. His knowledge and skills also provide the Company significant experience with capital markets transactions and investment in both public and private companies. The Board also considered his prior experience with global industrial and technology-dependent businesses, which provides the Company with informed judgment and a unique history for risk assessment, that makes him particularly well-suited to serve as a director of LP. Mr. Landgraf serves as the Chair of the Finance and Audit Committee and as a member of the Compensation Committee.
John W. Weaver, age 68, became a director of LP in February 2010. Mr. Weaver served as President and Chief Executive Officer of Abitibi-Consolidated, Inc., from 1999 until it merged with Bowater, Inc. in October 2007, at which time he became the Executive Chairman of AbitibiBowater, Inc. Mr. Weaver resigned as Executive Chairman of AbitibiBowater, Inc. as of February 1, 2009 and from the Board of AbitibiBowater, Inc.
as of October 31, 2009. AbitibiBowater, Inc. filed for protection and reorganization under the Bankruptcy laws of Canada and the United States in April 2009 and emerged in December 2010. Mr. Weaver held a number of senior executive positions in operations and sales prior to being appointed President and Chief Executive Officer of Abitibi-Consolidated, Inc. and has over 30 years of experience in the forest products industry. Mr. Weaver was a member of the Abitibi-Consolidated, Inc. board of directors, and has been the chair of both the Forest Products Association of Canada and FP Innovations and a director of the U.S. Endowment for Forestry and Communities. Mr. Weaver was selected to serve as a director based on a number of considerations, including his operational expertise in the forest products industry and the political, regulatory, and economic perspective his Canadian forest products experience provides. Mr. Weaver serves on the Nominating and Corporate Governance Committee and the Environmental and Compliance Committee.
Your shares represented by a properly completed and returned proxy card will be voted FOR the election of the three nominees named above unless you specify otherwise (Item 1 on the proxy card). If any nominee becomes unavailable to serve (which is not anticipated), your proxy will be voted for a substitute nominee designated by the Board of Directors. Each nominee who receives the affirmative vote of a majority of the total votes cast on his election will be elected. Shares not voted on the election of a nominee, whether because authority to vote is withheld, the record holder fails to return a proxy, or a broker non-vote occurs, will not count in determining the total number of votes cast on his election.
The current members of the Board of Directors whose terms of office will continue beyond the 2014 Annual Meeting of Stockholders (subject to Mr. Dunhams retirement at such meeting) are listed below. The Board of Directors has determined that each continuing director named below, except for Mr. Stevens, our Chief Executive Officer, has no material relationship with LP, either directly, or as a partner, stockholder, officer or director of an organization that has a relationship with LP, and is not disqualified from being independent under the NYSEs listing standards. Archie W. Dunham, age 75, is retiring at the Annual Shareholder meeting on May 1, 2014.
Daniel K. Frierson, age 72, became a director of LP in 2003. Mr. Frierson has been Chairman and Chief Executive Officer of The Dixie Group, Inc., a manufacturer and distributor of high-end carpet and rugs headquartered in Chattanooga, Tennessee, for more than 15 years. He is also a director of Astec Industries, Inc. Mr. Frierson was selected to serve as a director based upon a number of considerations, including his operational experience in a specialty products based industry that sells into LPs residential construction and repair/remodel customer base, his experience dealing with corporate governance, disclosure, investor relations and regulatory compliance matters, and his ability to assist in assessing risk and market influences. Mr. Frierson serves on the Nominating and Corporate Governance Committee and the Environmental and Compliance Committee.
Curtis M. Stevens, age 61, became a Director of LP in 2012. Mr. Stevens has been CEO of LP since May 4, 2012. Mr. Stevens served as the Chief Operating Officer of LP from December 5, 2011 to May 4, 2012, and prior to that position served as Executive Vice President Administration and Chief Financial Officer of LP since 2002 and Chief Financial Officer of LP since 1997. Prior to joining LP, Mr. Stevens served for 14 years in various financial and operational positions at Planar Systems, Inc. Mr. Stevens is also a director of Quanex Building Products, a publicly traded OEM for residential and commercial construction markets. Mr. Stevens holds a B.A. in Economics and an M.B.A in Finance from the University of California at Los Angeles. The Board of Directors selected Mr. Stevens to serve as a director based upon a number of considerations, including his appointment as Chief Executive Officer of LP, his prior performance as an executive at LP, his long history and deep familiarity with LPs financial and operational matters, and his satisfaction of relevant criteria included in LPs corporate governance principles. The Board of Directors also considered, in particular, Mr. Stevens expansive knowledge of the forest products industry in North America and South America, together with his knowledge and experience
in finance, accounting, capital markets, information technology and international business operations. The Board also believes he is an effective liaison between the Board and management. Mr. Stevens serves on the Executive Committee and the Environmental and Compliance Committee.
Lizanne C. Gottung, age 57, became a director of LP in 2006. Ms. Gottung has been Senior Vice President and Chief Human Resources Officer of Kimberly-Clark Corporation since 2002. She has held a variety of human resources, manufacturing and operational roles of increasing responsibility with Kimberly-Clark Corporation over the past 25 years. The Board selected Ms. Gottung to serve as a director based upon a number of considerations, including her experience in labor relations and human resources in a large publicly held corporation. The Board believes that her extensive experience in leading, designing and implementing human capital strategies including compensation and benefits, both domestically and globally, talent management, diversity and inclusion, organizational effectiveness and corporate health services make her particularly well-suited to serve as a director of LP. Ms. Gottung is a member of the Environmental and Compliance Committee and the Compensation Committee.
Dustan E. McCoy, age 64, became a director of LP in 2002. Mr. McCoy has been Chairman and Chief Executive Officer and a director of Brunswick Corporation since December 2005. He joined Brunswick Corporation in September 1999 and has also served as Vice President, General Counsel and Corporate Secretary until October 2000, and served as President of the Brunswick Boat Group from October 2000 to December 2005. In 1999 he was Executive Vice President of Witco Corporation, and prior to that served as Witcos Senior Vice President, General Counsel and Corporate Secretary. Mr. McCoy is also a director of Freeport-McMoran Copper & Gold Inc. The Board selected Mr. McCoy to serve as a director because of his extensive experience in legal and compliance matters generally, and more specifically his experience in corporate governance and disclosure matters for publicly traded companies. The Board believes that Mr. McCoys broad understanding of the operational, financial and strategic issues facing large global companies, his leadership and oversight in LPs compliance matters, his leadership roles for companies producing both commodity and specialty products, and his valuable strategic advice to the Board and management in advancing LPs interests make him particularly well-suited to serve as a director of LP. Mr. McCoy serves as Chair of the Environmental and Compliance Committee and as a member of the Nominating and Corporate Governance Committee.
Colin D. Watson, age 72, became a director of LP in 2000. Mr. Watson was President and Chief Executive Officer of Vector Aerospace Corporation from November 2003 until he retired in December 2004. Previously, he was a Director and CEO of Spar Aerospace Limited from December 1999 until his retirement from the Spar Aerospace board in January 2002. He also served as Chief Executive Officer and President and Chief Executive Officer of Spar Aerospace. From 1979 to 1996, Mr. Watson was President and Chief Executive Officer of Rogers Cable TV, Ltd. Mr. Watson was also a director of Rogers Communications Inc., until April 2012. The Board selected Mr. Watson to serve as a director because of his extensive financial and investment experience as well as his experience in operations in Canada. Mr. Watson is a citizen of Canada and he assists the Board in assessing the political and economic systems in Canada. The Board believes that his significant financial and leadership capabilities obtained from his senior leadership roles in a publicly traded company, along with his various roles in a number of private companies, make him particularly well-suited to serve as a director of LP. Mr. Watson is a member of the Finance and Audit Committee and is the Chair of the Compensation Committee.
Principles of Corporate Governance
Strong corporate leadership of the highest ethics and integrity has long been a major focus of LPs Board of Directors and management. The key tenets of LPs corporate governance principles include the following:
Current copies of LPs corporate governance principles, Code of Business Conduct and Ethics, and Code of Ethics for Senior Financial Officers are available on LPs website at www.lpcorp.com by clicking on About LP, then Investor Relations, then Corporate Governance. Any amendments to either code will also be posted at www.lpcorp.com. Copies of any of these documents may also be obtained free of charge by writing to Corporate Affairs, Louisiana-Pacific Corporation, 414 Union Street, Suite 2000, Nashville, Tennessee 37219.
Leadership Structure and Oversight of Risk
Board Leadership Structure
The members of the Board have a diverse set of skills and experiences and all of the members, except the Chief Executive Officer, are independent. The Board currently has nine members and, following Mr. Dunhams retirement at the 2014 Annual Meeting of Stockholders, will have eight members. In 2004, the Board determined, for the purpose of enhancing the Boards independence and effectiveness, that it was in the best interests of LP and its stockholders to separate the Chairman position from the CEO. An independent director, Gary Cook, was elected by the Board to be the nonexecutive Chairman. The Board continues to have full access to the experience and insight of the CEO, as he is a member of the Board. If in the future, the Board determines that it is then in the best interests of LP and its stockholders to combine the Chairman and CEO positions, it will disclose its reasoning for modifying this structure.
The Chairmans duties include: preparing agendas for Board meetings in consultation with other directors and management; chairing meetings of the Board and executive sessions of the independent directors; chairing meetings of the Executive Committee; leading the independent directors in periodic reviews of the performance of the CEO; keeping directors informed by timely distribution of information; serving as liaison between independent directors and the CEO; and recommending independent outside advisors who report directly to the Board on material issues.
Oversight of Risk
The directors are elected representatives of the stockholders and act as fiduciaries on their behalf. In performing its general oversight function, the Board reviews and assesses LPs strategic and business planning as well as managements approach to addressing significant risks. While the full Board meets at least quarterly, it has delegated much of its risk oversight activities to various Board committees (discussed below). All committees report directly to the Board regularly and all committee minutes are distributed for review by the entire Board. Additionally, the Board and committees are authorized to retain independent advisors, including attorneys or other consultants, to assist in their oversight activities.
As set out in LPs Corporate Governance Principles, it is the responsibility of the CEO, and of senior management under the CEOs direction, to operate the business of LP on a day-to-day basis in a competent and ethical manner to produce value for the stockholders, and to regularly inform the Board of the status of LPs business operations. Managements responsibilities include strategic planning, preparation of annual operating
plans and budgets, risk management and financial reporting. The Board fulfills its oversight responsibilities as set out in the Corporate Governance Principles on behalf of the stockholders and in furtherance of LPs long-term health. The Boards role does not involve managing the daily complexities of business transactions. The current leadership structure provides directors with significant information related to risks faced by LP, as well as an opportunity to synthesize, discuss and consider these risks independent of management and to provide guidance to management.
As part of its oversight responsibilities, the Board and its committees are involved in the oversight of risk management of LP. It does so in part through its review of findings and recommendations by LPs Risk Management Council, the participants of which are executives and/or functional department leaders in the areas of Risk Management, Finance, Audit, Legal, Information Technology, Environmental, Product Quality, and Compliance, all of whom supervise day-to-day risk management throughout LP. The purpose of the Risk Management Council is to help the CEO assess the effectiveness of LPs handling of risks. The Board or its committees have direct access to financial and compliance leaders on a quarterly basis or as needed. Further, LPs Treasurer and Risk Manager periodically presents to the Finance and Audit Committee, or the Board, a comprehensive report as to the Councils risk mapping efforts, as well as managements efforts to mitigate and transfer risk.
The Board committees consider the risks within their areas of responsibilities under each of their charters. The Finance and Audit Committee considers operational and financial risk on a quarterly basis and reviews various guidelines for cash, credit and liquidity measures. It also reviews risks related to financial disclosures and reporting and reviews the audit risk assessment identifying internal controls and risks that affect the audit plan for the coming year. The Nominating and Corporate Governance Committee reviews the various regulatory changes and trends related to corporate governance, including Board member selection and maintaining appropriate corporate governance principles and guidelines, as well as conducting annual evaluations to assess Board and committee effectiveness. The Environmental and Compliance Committee reviews quarterly each compliance function and considers the various allegations, disciplinary actions and training statistics, and annually reviews the entire ethics program and any waivers of the program. The Compensation Committee reviews LPs overall compensation programs and their effectiveness at linking executive pay to long-term performance, as well as aligning the interests of management with stockholders. Each director is informed of the oversight activities of each committee through regular reports by the Committee Chairs to the entire Board as well as reviewing the minutes of each committee meeting.
Board and Committee Meetings
During 2013, each director attended at least 75% of the aggregate of the total number of meetings of the Board and meetings held by all committees of the Board on which he or she served during his or her tenure on the Board or such committees. The Board of Directors held seven meetings in 2013. LP does not have a policy regarding attendance by directors at the annual meeting of stockholders. In 2013, seven of nine directors attended the annual meeting.
The Boards committees and membership on each committee as of March 3, 2014, are set forth in the table below. Except as otherwise noted, each committee member also served as shown in the table throughout 2013. Each committee shown below other than the Executive Committee has a written charter delineating its membership, duties and functions. Copies of the charters are available on LPs website as described above under Principles of Corporate Governance and may also be obtained by writing to the address listed above. The Board will review the committee memberships at its regular quarterly meeting in May 2014 to address necessary changes due to Mr. Dunhams retirement.
X = Committee member; * = Chairman
Finance and Audit Committee
The Finance and Audit Committee (the Audit Committee) held seven meetings during 2013. Two of these meetings included education and training sessions on financial, accounting and disclosure issues currently applicable to LP. In order to effectively perform its oversight responsibilities and duties, the Audit Committee holds, in addition to executive sessions, separate sessions from time to time with LPs management, internal auditors, and the independent auditor.
The Audit Committee has sole authority and responsibility to select, retain, oversee, and replace LPs independent auditor and to approve its compensation. The Audit Committee is responsible for pre-approving all audit services and legally-permitted non-audit services. The Audit Committee reviews the annual audit plan of the independent auditor and performs an annual evaluation of the auditors qualifications, performance and independence. The Audit Committee also reviews reports by the auditor regarding discussions with management relating to critical accounting policies, alternative treatments of financial information under generally accepted accounting principles, and other significant accounting issues, the results of the audits and the quarterly and annual financial statements, the opinion to be rendered by the auditor in connection with LPs audited financial statements, and its audit of internal control over financial reporting. The Audit Committee meets with the auditor to discuss any audit problems or difficulties and managements responses. The Audit Committee is responsible for reviewing and discussing with the auditor all matters that are required to be reviewed and discussed with the auditor under applicable legal, regulatory and corporate governance rules.
The Audit Committee also oversees LPs internal audit function and internal control systems, including reviewing LPs internal audit plans, the scope, coverage and objectivity of the internal audits performed, and the adequacy and the effectiveness of certain internal legal compliance programs. The Audit Committee also oversees LPs disclosure controls and procedures and internal controls over financial reporting, and its guidelines, policies and programs with respect to financial risk assessment and risk management. The Director of Internal Audit attends meetings of and reports to the Audit Committee quarterly, as well as on an as-needed-basis, and also meets with the Audit Committee separate from management.
With respect to financial and financial reporting matters, the Audit Committee makes recommendations as appropriate to the Board of Directors regarding capital structure issues, dividend policy, treasury stock purchases, acquisitions and divestitures, external financing, complex financial transactions, and investment and debt policies. The Audit Committee also reviews and discusses with management the status and potential financial implications of significant legal and tax matters, major issues regarding accounting principles, significant financial reporting issues, the effect of regulatory and accounting initiatives on LPs financial statements, the financial results to be included in LPs reports filed with the SEC, and LPs earnings press releases and other financial information provided to the public. Additionally, the Audit Committee regularly meets with LPs Treasurer and Risk Manager and LPs General Counsel and Compliance Officer to review various credit, operational and legal/compliance risks and methods of risk mitigation, including insurance coverage and limits.
The Audit Committee is also responsible for reviewing transactions between LP and certain related persons as described under the heading Related Person Transactions. The Audit Committee conducts an annual self-evaluation of responsibilities under its charter and various regulatory requirements and reports its findings to the Board.
Audit Committee Financial Experts
The Board of Directors has determined that each member of the Audit Committee is financially literate, as that term is used in the NYSEs listing standards, and an audit committee financial expert, as defined in the SECs rules and regulations. The Board of Directors has also determined that each member of the Audit Committee meets the independence requirements for audit committee membership mandated by the Sarbanes-Oxley Act of 2002 and incorporated into the NYSEs listing standards.
The Compensation Committee, which met four times in 2013, exercises the authority of the Board of Directors with respect to the compensation of LPs executive officers, including salaries, cash incentive compensation, equity-based compensation, deferred compensation, retirement benefits, and severance pay and benefits. It is responsible for administering two stock award plans as they relate to officers and employees: LPs 1997 Incentive Stock Award Plan, under which no new awards will be made, and LPs 2013 Omnibus Stock Plan (the Stock Award Plan), which was approved by shareholders at the May 2013 Annual Meeting and replaces the 1997 Incentive Stock Award Plan. It also administers the Amended and Restated Annual Cash Incentive Award Plan (the Cash Incentive Plan) with respect to awards to management. In addition, the Compensation Committee administers LPs other compensation and benefit plans covering officers and employees to the extent authorized under the terms of the plan or by action of the Board of Directors, including the participation in each plan by LPs executive officers. Neither the Compensation Committee nor the Board, however, administers any ERISA or other pension plans.
The Compensation Committee, which is comprised of independent directors, is also responsible for developing and implementing compensation and benefit plans. The Compensation Committee conducts an annual self-evaluation of its performance and satisfaction of its responsibilities under its charter and various regulatory requirements and reports its findings to the Board.
In order to facilitate compliance with special rules affecting the deductibility of executive compensation under the Internal Revenue Code of 1986, as amended (the Internal Revenue Code), and the short-swing profit liability provisions of the federal securities laws, certain compensation decisions with respect to LPs executive officers are made by a special subcommittee of the Compensation Committee. Presently, each member of the Compensation Committee is also a member of the subcommittee. The subcommittee is responsible for decisions relating to (1) performance goals associated with performance-based compensation, including under the Cash Incentive Plan, and (2) criteria for equity-based awards under the Stock Award Plan.
Under its charter, the Compensation Committee has the authority in its sole discretion to retain the services of outside consultants to assist it in making decisions regarding executive compensation and other compensation matters for which it is responsible. The Compensation Committee also has sole authority to terminate its
consultants and to approve the fees and other terms of their engagement. The Compensation Committee has retained the firm of Frederic W. Cook & Co., Inc. (Frederic Cook) as the committees independent compensation consultant to assist the committee in the discharge of its responsibilities, and to provide such services to the committee in relation thereto as the committee may from time to time request.
Prior to selecting Frederic Cook as its independent compensation consultant, and as required by its Charter, the Compensation Committee considered various factors relevant to Frederic Cooks independence from LPs management. Based upon this assessment, the committee is not aware of any conflict of interest that would prevent Frederic Cook from providing independent advice concerning executive compensation matters. The consultant has unrestricted access to the committee Chair, attends executive sessions with the committee and reports directly to the committee. Further, any services requested of the consultant by management are subject to prior approval by the committee Chair, and the committee Chair will receive a copy of all invoices sent to LP by the consultant. No management services were requested in 2013.
A managing director of Frederic Cook generally participates in the Compensation Committees meetings, including the executive sessions. Frederic Cook provides advice to the committee regarding individual performance objectives for target awards to certain executive officers under the Cash Incentive Plan, the composition of the peer group and benchmarks for purposes of analyzing LPs competitive position with respect to executive compensation, market survey data supporting compensation packages for new and existing executive officer positions, and the effect of SEC rules on LPs disclosures regarding the committee and executive compensation in LPs proxy statements.
Members of LPs management, including its Chief Executive Officer, Chief Financial Officer, Vice President Human Resources, and Vice President General Counsel and Corporate Secretary, generally attend each Compensation Committee meeting. However, no LP officers or employees attend the executive sessions held by the committee in conjunction with each of its regular quarterly meetings, and LP executives are excused during committee discussions and determinations regarding their individual compensation.
In connection with its review and approval of various elements of LPs executive compensation program, the Compensation Committee reviews and analyzes appropriate information prepared by the committees outside consultant and LPs management, including compensation benchmark data compiled by Frederic Cook, quarterly reports provided by management regarding stock transactions and ownership levels of LPs executive officers, descriptions of perquisites provided to executive officers, and profiles for each executive officer showing a breakdown of key components of executive compensation and total amounts paid or accrued by LP.
Members of LPs management, including its Chief Executive Officer, Chief Financial Officer, and Vice President, Human Resources, made recommendations to the Compensation Committee concerning various elements of LPs compensation program during 2013, including elements of the program that apply to executive officers. Such recommendations related to base salary levels for LPs executive officers and target bonus amounts under the Cash Incentive Plan, the allocation between corporate performance goals and individual performance goals for the target bonuses, identification and calculation of the corporate performance goal, and establishment of individual performance goals for each executive officer. Those members of management also made recommendations regarding the terms, size, and value of proposed grants of restricted stock and stock-settled stock appreciation rights (SSARs) under the Stock Award Plan. LPs Chief Executive Officer provides the committee with an evaluation to assist the committee in assessing the performance of executive officers other than himself, as described under the heading Compensation of Executive OfficersCompensation Discussion and AnalysisAchievement of Performance Goals for 2013.
Environmental and Compliance Committee
The Environmental and Compliance Committee, which met four times during 2013, is responsible for reviewing the effectiveness of LPs environmental management systems and ethics and compliance programs, product quality management systems, other legal compliance programs, and non-financial compliance audit work performed by LPs internal audit group. The Environmental and Compliance Committee receives quarterly written reports directly from functional leaders responsible for compliance, including the Vice President of Environmental Health & Safety, the Director of Internal Audit Department, the Director of Quality, and the
Director of Compliance. Additionally, these leaders report in person annually to the committee on a rotating basis and are generally available for other committee meetings as needed. The Director of Compliance is a regular participant in committee meetings. The Environmental and Compliance Committee conducts an annual self-evaluation of its performance and satisfaction of its responsibilities under its charter and reports its findings to the Board.
Nominating and Corporate Governance Committee
The Nominating and Corporate Governance Committee (the Nominating Committee), which met three times in 2013, is authorized to establish procedures for selecting and evaluating potential nominees for director and to recommend to the Board of Directors qualifications for membership on the Board, including standards of independence for outside directors. The Nominating Committee also considers and makes recommendations to the Board regarding the size and diversity of the Board of Directors and Board committees, the selection of candidates for director, and the compensation of directors, including annual retainers, meeting fees, deferred compensation, stock and option grants, and pension or retirement plans. It develops and recommends for consideration by the Board principles, guidelines, and procedures for other matters of corporate governance that may arise. The Nominating Committee periodically reviews LPs Code of Business Conduct and Ethics, which covers directors, officers and employees and addresses conflicts of interest, reporting of illegal or unethical behavior and related issues, and makes any recommendations to the Board for changes as it deems appropriate. It also oversees annual evaluations of the effectiveness of the Board of Directors, the operations of Board committees (including itself), and the contributions of individual directors.
Compensation for outside directors, including, annual cash retainers, meeting fees, and annual equity-based grants, are described below under Directors Compensation. The Nominating Committee may request advice from Frederic Cook, its independent compensation consultant, regarding the types and amount of compensation provided to LPs outside directors.
Consideration of Director Nominees
LPs corporate governance principles approved by the Nominating Committee and adopted by the Board provide that directors must be persons of integrity, with significant accomplishments and recognized business stature, who will bring a diversity of perspectives to the Board. Although the Board has not adopted a specific policy with regard to considering diversity in identifying director nominees, it believes that appropriate expertise, gender, cultural and geographical diversity should be reflected on the Board. Directors must also be able to commit the necessary time to prepare for and attend all regularly scheduled meetings of the Board and committees on which they serve, except when there are unavoidable business or personal conflicts. At least one outside director should have significant experience in the types of industries and business in which LP operates. The Nominating Committee uses the results of annual evaluations of the Board and Board committees in evaluating the skills and attributes desired in new director candidates. The Nominating Committee believes it to be desirable for all new outside directors (as is true of all current outside directors) to qualify as independent under the NYSEs listing standards. Experience in some capacity with publicly traded companies is also a desirable attribute. Additionally, the corporate governance principles recognize that LPs Chief Executive Officer will normally be a director and that other senior officers may be elected to the Board in appropriate circumstances as long as a majority of directors are independent as determined by the Board of Directors in accordance with the NYSEs listing standards.
The Nominating Committee is authorized by its charter to retain a third-party search firm to assist in identifying director candidates. Ideally, each individual proposed as a director candidate will be known by at least one existing director who can assist in evaluating the candidates reputation for integrity and ethical conduct in business dealings.
As part of its annual self-assessment process, the Board and its committees determine the specific skill sets and necessary characteristics for an effective committee and the Board as a whole. If the Board, generally through the Nominating Committee, determines that a necessary skill set or perspective is absent, the Board will authorize an increase in the number of Board members. In the event of a vacancy resulting from retirement or
this annual self assessment process, the Nominating Committee determines which skills should be sought in filling the vacancy and then each current director is asked to suggest names of potential director candidates based on the applicable criteria. As part of the process, the Nominating Committee considers a potential candidates ability to contribute to the diversity of personal and professional experiences, opinions, perspectives and backgrounds on the Board. Once the potential candidates are identified, the Nominating Committee designates one or more directors to screen each potential candidate for further consideration based on the relevant criteria.
Following that screening process, the Nominating Committee (or a subcommittee) conducts in-person or telephone interviews with candidates warranting further consideration. Following those interviews, the Nominating Committee recommends a candidate to the full Board for election, as well as alternative candidates that the Board may wish to consider.
The Nominating Committee will consider stockholders recommendations concerning nominees for director. Any such recommendation, including the name and qualifications of a nominee, may be submitted to LP at its corporate offices: Louisiana-Pacific Corporation, 414 Union Street, Suite 2000, Nashville, Tennessee 37219, to the attention of the Chairman of the Nominating Committee. Stockholder-recommended candidates will be evaluated by the same criteria described above.
Stockholder Nominations for Election as Director
LPs bylaws provide that nominations for election to the Board of Directors may be made by the Board or by any stockholder of record entitled to vote for the election of directors. Notice of a stockholders intent to make such a nomination must be given in writing, by personal delivery or certified mail, postage prepaid, to the Chairman of the Board and must include the following:
The notice must be delivered at least 45 days prior to the first anniversary of the initial mailing date of LPs proxy materials for the preceding years annual meeting. For the 2015 annual meeting, this notice must be received by LP no later than February 3, 2015.
Communications Between the Board and Stockholders, Employees, or Other Interested Parties
LP will promptly forward to the Chairman of the Board any letter or other written communication sent to the Board or any individual director or group of directors, as long as the communication is delivered by certified mail or courier service addressed to LPs Corporate Secretary at its corporate offices: Louisiana-Pacific Corporation, 414 Union Street, Suite 2000, Nashville, Tennessee 37219, and contains the name and address of the sender. If the communication is addressed to an individual director, it will first be sent to that individual for a determination as to whether it relates to a personal matter rather than an LP or an LP Board matter. The Chairman of the Board, in his or her sole discretion, will determine how to handle each communication, including forwarding it for consideration by the full Board, the non-management directors or independent directors only, a Board committee, or an individual director.
ITEM 2RATIFICATION OF SELECTION OF INDEPENDENT AUDITOR
The Audit Committee has appointed Deloitte & Touche LLP as LPs outside independent auditor to audit its consolidated financial statements for 2014. Although LP is not required to seek stockholder approval of this appointment, the Board has determined it to be sound corporate governance practice to submit the appointment for ratification by LPs stockholders. If the appointment is not ratified by stockholders, the Audit Committee will investigate the possible basis for the negative vote and will reconsider the appointment in light of the results of its investigation.
Representatives of Deloitte & Touche LLP are expected to attend the annual meeting where they will be available to respond to questions and, if they desire, may make a statement.
Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditor
The Audit Committee has pre-approved all audit services provided by LPs independent auditor, Deloitte & Touche LLP, for the years ended December 31, 2012 and 2013. The Audit Committee also pre-approved all audit-related and permissible non-audit services provided by LPs independent auditor during 2012 and 2013 and concluded that the provision of those services by Deloitte & Touche LLP was compatible with the maintenance of that firms independence in the conduct of its auditing functions.
The Audit Committee has adopted a policy for the pre-approval of services provided by the independent auditor. Under the policy, pre-approval is generally provided for up to one year. Each pre-approval is detailed as to the particular service or category of services and is subject to a specific budget. In addition, the Audit Committee may pre-approve particular services on a case-by-case basis. For each proposed service, the independent auditor must provide a statement that such service is consistent with the SECs rules on auditor independence. The Audit Committee may delegate pre-approval authority to one or more of its members. Such a member must report any decisions to the Audit Committee at its next scheduled meeting. Unless specified otherwise by the Audit Committee, the Chairman of the Audit Committee has been delegated pre-approval authority under the pre-approval policy.
The aggregate fees, including expenses, billed to LP for the years ended December 31, 2012 and 2013 by LPs principal accounting firm, Deloitte & Touche LLP, the member firms of Deloitte Touche Tohmatsu, and their respective affiliates, were as follows:
Audit Fees. Includes fees for audit services involving the audit of LPs consolidated financial statements, review of interim quarterly statements, the audit of LPs internal control over financial reporting as required by Section 404 of the Sarbanes-Oxley Act of 2002, any other procedures required to be performed by LPs independent auditor in order to render its opinion on LPs consolidated financial statements, and services in connection with statutory audits and financial audits for certain of LPs subsidiaries.
Audit-Related Fees. Includes any fees for assurance and related services that are traditionally performed by the independent auditor and are not reported as audit fees. These audit-related services may include due diligence services pertaining to potential business acquisitions or dispositions, due diligence procedures related to debt or equity offerings, accounting consultations related to accounting, financial reporting, or disclosure matters not classified as audit services, assistance with understanding and implementing new accounting and financial
reporting guidance from rulemaking authorities not classified as audit services, financial audits of employee benefit plans, and assistance with internal control reporting requirements. Audit-related fees for 2012 primarily include fees for audits of employee benefit plans and review of reports issued in connection with lender and regulatory requirements. Audit-related fees for 2013 primarily include fees for audits of employee benefit plans, review of reports issued in connection with lender and regulatory requirements, and due diligence procedures.
Tax Fees. Includes any fees for tax services, including tax compliance and planning services. Tax fees for 2012 and 2013 primarily include fees for assistance related to international and state tax services and preparation of tax form 990 related to certain of LPs Health and Welfare Plans.
All Other Fees. Amounts represent fees for a license to use a financial accounting technical research database.
The Board recommends a vote FOR the ratification of the Audit Committees appointment of Deloitte & Touche LLP as LPs principal independent auditor (Item 2 on the proxy card).
ITEM 3ADVISORY VOTE TO APPROVE EXECUTIVE COMPENSATION
The Board of Directors recognizes the interest of stockholders in executive compensation matters. We are providing our stockholders an opportunity to cast an advisory vote on the compensation of our named executive officers, as described in this proxy statement. Although the vote is non-binding, we value continuing and constructive feedback from our stockholders on compensation and other important matters. In the past three years, stockholders votes in favor of our compensation policies and programs have exceeded 90%.
As described in the Compensation Discussion and Analysis section of this proxy statement, we believe that our compensation packages provide competitive compensation that enables us to attract, retain and motivate a high-performance executive management team, link individual performance to corporate financial performance, and align the interests of management and stockholders by promoting ownership of LP common stock. For more details on our compensation philosophy, please read the Compensation Discussion and Analysis relating to our executive compensation programs, including specific information about compensation of our named executive officers for 2013.
On behalf of the stockholders, the Compensation Committee continually reviews current market practices and data, and our compensation programs and ancillary policies, in addition to actual executive compensation. The Compensation Committee seeks to achieve the desired goals of aligning our executive compensation structure with our stockholders interests. As a result of the committees review in 2013, the committee took several important actions and maintained existing practices that represent strong corporate governance:
We believe that proper administration of our executive compensation programs should result in the development of a management team motivated to lead our company to improved fundamental financial performance in furtherance of the long-term interests of LP and its stockholders. For these reasons, we recommend that stockholders vote, on an advisory basis, FOR the following resolution:
Resolved, that the compensation paid to our named executive officers, as disclosed in this proxy statement pursuant to Item 402 of Regulation S-K adopted by the SEC, including the Compensation Discussion and Analysis, executive compensation tables and accompanying footnotes and narrative discussion, is hereby approved.
The above-referenced disclosures appear under the heading Compensation of Executive Officers in this proxy statement.
The above resolution will be deemed to be approved if it receives the affirmative vote of a majority of the total votes cast on Item 3 at the annual meeting. Abstentions and broker non-votes are not considered to be votes cast and, accordingly, will have no effect on the outcome of the vote. As this vote is an advisory vote, the outcome is not binding on us with respect to future executive compensation decisions, including those relating to our named executive officers. Our Compensation Committee and Board of Directors will, however, take the outcome of the vote into account in making future executive compensation decisions, as they did in 2013 and prior years.
At LPs 2010 annual meeting of stockholders, a majority of the votes cast on an advisory basis as to the frequency with which LP should conduct an advisory stockholder vote on the compensation of LPs executive officers (a say-on-pay vote) were cast in favor of conducting a say-on-pay vote annually. Accordingly, LP presently intends to conduct a say-on-pay vote annually until the next required advisory vote on the frequency of say-on-pay votes.
ITEM 4APPROVAL OF THE AMENDED AND RESTATED ANNUAL CASH INCENTIVE AWARD PLAN
In 2009, LPs stockholders approved modified performance goals under LPs Amended and Restated Annual Cash Incentive Award Plan (the Current Cash Incentive Plan), to be used for cash incentive awards to executive officers of LP. The Current Cash Incentive Plan allows LP to grant annual cash incentive opportunities based upon meeting or exceeding performance goals. On January 30, 2014, the Board amended and restated the Current Cash Incentive Plan (the Cash Incentive Plan) to again modify the performance goals set forth in the Current Cash Incentive Plan. The Board is submitting for stockholder approval the Cash Incentive Plan.
LPs principal reason for submitting the Cash Incentive Plan to stockholders for approval is to enable LP to continue to structure certain annual cash incentive opportunities under the Cash Incentive Plan so that they may qualify as qualified performance-based compensation for purposes of Section 162(m) of the Internal Revenue Code of 1986, as amended (the Code). If annual incentive awards under the Cash Incentive Plan qualify as qualified performance-based compensation for purposes of Section 162(m) of the Code, then LP may be able to receive a federal income tax deduction for certain compensation paid to its Chief Executive Officer and the other three most highly compensated executive officers (other than LPs Chief Financial Officer) in excess of $1 million for any taxable year. While LP believes it is in the best interests of LP and its stockholders to have the ability to grant qualified performance-based compensation under Section 162(m) of the Code, it may decide to grant compensation that will not qualify as qualified performance-based compensation for purposes of Section 162(m) of the Code. Moreover, even if LP intends to grant compensation that qualifies as qualified performance-based compensation for purposes of Section 162(m) of the Code, it cannot guarantee that such compensation ultimately will be deductible by LP.
With respect to annual incentive awards, in order to satisfy the qualified performance-based compensation exception to the deduction limitation of Section 162(m) of the Code, the payout of the award must be contingent solely on the attainment of one or more performance goals determined by a committee of two or more outside directors. The award must also be granted pursuant to a stockholder approved plan containing (1) the material terms of the performance criteria pursuant to which the performance goals may be established, (2) the individuals eligible to receive awards under the plan, and (3) a specified limit on the maximum awards that a participant may receive within a certain time period or periods. Stockholder approval of this proposal is intended to satisfy the stockholder approval requirements under Section 162(m) of the Code.
Summary of the Cash Incentive Plan
A summary description of the entire Cash Incentive Plan, as amended and restated as of January 30, 2014, is set forth below. The summary of the Cash Incentive Plan is not intended to be exhaustive and is qualified in its entirety by the terms of the Cash Incentive Plan. A complete copy of the Cash Incentive Plan, as proposed for approval, is attached to this proxy statement as Appendix A.
If approved by LPs stockholders, the Cash Incentive Plan will be effective for the fiscal year beginning on January 1, 2014 and for each fiscal year beginning after that date until terminated.
Administration. The Compensation Committee of the Board (or Compensation Committee) will administer the Cash Incentive Plan. For each annual performance period, the Compensation Committee will approve target awards for all participants and will approve performance goals and achievement percentages with respect to such goals. At the end of the annual performance period, the Compensation Committee will certify the extent to which the performance goals have been achieved. In addition, the Compensation Committee will have exclusive authority to establish the performance goals, weighting percentages and achievement percentages with respect to such goals, to certify achievement, and to take all other actions with respect to awards for LPs Chief Executive Officer and any other participant that it determines may be subject to Section 162(m) of the Code.
Miscellaneous Provisions. A participants benefits under the Cash Incentive Plan cannot be sold, transferred, anticipated, assigned, pledged, hypothecated, seized by legal process, subjected to claims of creditors in any way, or otherwise disposed of. Nothing in the Cash Incentive Plan will provide a guarantee of continued employment with LP to any participant or interfere with LPs right to terminate any participants employment at any time. The Compensation Committee may terminate or amend the Cash Incentive Plan at any time and in any manner deemed advisable.
Eligibility. A Participant must continue Employment with Corporation until the end of a Plan Year in order to be entitled to receive an Award for that Plan Year. Participant will be selected from this group to participate in the Cash Incentive Plan for all or a portion of a calendar year. Currently, approximately 353 individuals[, including our executive officers,] are expected to be eligible to participate in the Cash Incentive Plan.
Target Incentive Awards. Participants for a plan year will be selected by the Compensation Committee and will be granted an award opportunity for the plan year. Each award opportunity will specify a targeted incentive opportunity (or target award) expressed either as a dollar amount or as a percentage of the participants regular annualized base salary.
Performance Goals and Targets. The performance goals that will be used to measure a participants award achievement will consist of one or more of the following:
Corporate performance goals may include one or more measures related to earnings, profitability, efficiency, or return to stockholders and may include earnings, earnings per share, operating profit, stock price, costs of production, cash flow, revenue growth, return on equity, return on assets, return on invested capital, or other measures, whether expressed as absolute amounts, as ratios, or percentages of other amounts. Success regarding these corporate performance goals may be measured against various standards, including budget targets, improvement over prior years, and performance relative to other companies or industry groups.
Strategic business unit performance goals may include one or a combination of objective factors related to success in implementing strategic plans or initiatives, introducing products, constructing facilities, or other identifiable objectives.
Financial business unit performance goals may include the degree to which the business unit achieves one or more measures related to its revenue growth, earnings, profitability, efficiency, operating profit, costs of production, cash flow, return on equity, return on assets, return on invested capital, or other measures, whether expressed as absolute amounts or as ratios or percentages, which may be measured against various standards, including budget targets, improvement over prior years, and performance relative to other companies or business units.
Individual performance goals will naturally vary depending upon the responsibilities of individual participants and may include, without limitation, goals related to success in developing and implementing particular management plans or systems, reorganizing departments, establishing business relationships, or resolving identified problems.
Each performance goal will be weighted as a percentage so that the total weighted percentages for all performance goals regarding a participants award is 100%. Each performance goal will also specify an achievement percentage (ranging from 0% to 200%) to be used in computing the payout for the award based upon the extent to which the particular performance goal is achieved. Achievement percentages for a particular performance goal may be based on: (1) an all or nothing measure that provides for a specified achievement percentage if the performance goal is met and a zero achievement percentage if the performance goal is not met; (2) several levels of performance or achievement (such as a threshold, target and maximum level) that each correspond to a specified achievement percentage; or (3) continuous or numerical measures that define a sliding scale of achievement percentages.
Determining Final Award Payouts. The amount paid for each award will be equal to the product of: (1) the total achievement percentage for the participant for the applicable performance goals for the plan year; and (2) the participants target award for the plan year. In no event, however, may a participants award payment for any plan year exceed the lesser of (A) 200% of the participants target award and (B) $3,000,000.
As soon as possible after the completion of the plan year, the award payout will be determined for each participant based on determination of (1) the extent to which the applicable performance goals were achieved, and (2) the weighted achievement percentages for the applicable performance goals. A participant must generally continue his or her full or part-time employment with LP until the end of the plan year to be entitled to receive an award payout for the plan year (and the Compensation Committee may approve additional requirements regarding continued employment with respect to award payouts). However:
For these purposes, a participants disability means being permanently unable to perform his or her duties for LP by reason of a medically determinable physical or mental impairment that can be expected to result in death or that has lasted or can be expected to last for a continuous period of at least 12 months, and a participants approved retirement means his or her termination of employment with LP after attaining age 60 that is approved by LPs Chief Executive Officer.
Payment of Awards. Each participants award payout will be made in cash in a lump sum within 30 days after the final payout amount has been determined (subject to any additional restrictions or limitations expressly provided for under the Louisiana-Pacific Corporation Management Incentive Plan and applied to the participants award).
New Plan Benefits
In February 2014, the Compensation Committee established the target amounts of cash incentive award opportunities for 2014 based on the salary of each of the participants. The target amount was set at 55% of base salary for the executive team except the Chief Executive Officer. The target amount for LPs Chief Executive officer was set at 100% of his base salary. Satisfaction of corporate business unit, and individual performance goals will be determined by the Compensation Committee following the end of 2014 and cash payments, if any, will be made as soon as practicable after the determination of the amount of the award. The targeted amounts of award opportunities for 2014 that have been approved are as follows:
New Plan Benefits
Amended and Restated Annual Cash Incentive Plan
With respect to other grants under the Cash Incentive Plan, it is not possible to determine the specific amounts of awards that may be granted in the future because awards are discretionary and payout amounts are based on actual future performance and the discretion of the plan administrator.
Board Voting Recommendation
The Board of Directors is asking stockholders to approve this proposal as outlined above. In the event stockholders do not approve this proposal, no further awards will be made to executive officers under the Cash Incentive Plan in the future and the Compensation Committee will, in its discretion, consider other methods of providing appropriate compensation to executive officers.
Approval of the terms of the modified performance goals will require the affirmative vote of a majority of the total votes cast on this item. Abstentions and broker non-votes are not considered to be votes cast and, accordingly will have no effect on the outcome of the vote.
The Board of Directors recommends a vote FOR the modified performance goals under the Cash Incentive Plan. (Item 4 on the proxy card).
At the time this proxy statement was printed, management knew of no matters to be presented at the annual meeting other than the items of business listed in the Notice of Annual Meeting of Stockholders. If any matters other than the listed items properly come before the meeting, the proxies named in the accompanying form of proxy will vote or refrain from voting on such matters in accordance with their judgment.
FINANCE AND AUDIT COMMITTEE REPORT
In discharging its responsibilities, the Audit Committee and its individual members have met with management and LPs independent auditor, Deloitte & Touche LLP, to review LPs accounting functions and the audit process and to review and discuss LPs audited consolidated financial statements for the year ended December 31, 2013. The Audit Committee discussed and reviewed with its outside auditing firm all matters that the firm was required to communicate and discuss with the Audit Committee under applicable auditing standards and all other legal, regulatory and corporate governance standards, including those described in Statement on Auditing Standards No. 61, as amended, regarding communications with audit committees. Deloitte & Touche has also provided to the Audit Committee the written disclosures and the letter required by applicable requirements of the Public Company Accounting Oversight Board regarding communication with the Audit Committee concerning independence. The Audit Committee discussed with Deloitte & Touche the firms independence.
Based on its review and discussions with management and LPs outside auditor, the Audit Committee recommended to the Board of Directors that LPs audited consolidated financial statements for the year ended December 31, 2013, be included in LPs Annual Report on Form 10-K filed with the SEC.
Kurt M. Landgraf, Chairman
E. Gary Cook
Archie W. Dunham
Colin D. Watson
Five Percent Beneficial Owners
The following table provides information concerning the beneficial ownership of Common Stock by the persons known to LP to beneficially own 5% or more of the outstanding Common Stock as of February 28, 2014:
Directors and Executive Officers
The following table summarizes the beneficial ownership of Common Stock of LPs directors, nominees for director, and executive officers included in the Summary Compensation Table below:
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16 of the Securities Exchange Act of 1934 (Section 16) requires that reports of beneficial ownership of Common Stock and changes in such ownership be filed with the SEC and the NYSE by LPs officers, directors, and certain other reporting persons. Based solely upon a review of copies of Forms 3, 4, and 5 (and amendments thereto) filed by LPs reporting persons and written representations by such persons, to LPs knowledge, all Section 16 reporting requirements applicable to such persons were complied with for the period specified in the SECs rules governing proxy statement disclosures.
Compensation Committee Report
In accordance with its written charter adopted by the Board of Directors, the Compensation Committee (the Committee) has oversight of compensation policies designed to align compensation with our overall business strategy, values and management initiatives. In discharging its oversight responsibility, the Committee has retained an independent compensation consultant, Frederic W. Cook & Co. Inc. (Frederic Cook), to advise the Committee regarding market and general compensation trends.
The Committee has affirmed the independence of its consultant through review of the firms independence policy and is not aware of any conflict of interest that would prevent the consultant from providing independent advice to the Committee regarding executive compensation matters. The consultant is responsible solely to the Committee and undertook no work with or for the management of the company. The consultant is not the beneficial owner of any shares of Louisiana-Pacific Corporation common stock, and fees payable by Louisiana-Pacific to Frederic Cook during 2013 were less than 1% of the firms gross revenues.
The Committee has reviewed and discussed the Compensation Discussion and Analysis with our management, which has the responsibility for preparing the Compensation Discussion and Analysis. Based upon this review and discussion, the Committee recommended to the Board that the Compensation Discussion and Analysis be included in this proxy statement and incorporated by reference in our Annual Report on Form 10-K filed with the Securities and Exchange Commission for the fiscal year ended December 31, 2013.
Colin D. Watson, Chairman
Archie W. Dunham
Lizanne C. Gottung
Kurt M. Landgraf
Compensation Committee Interlocks and Insider Participation
During 2013, each member of the Committee was an independent director, and none of them were employees or officers or former employees or officers of LP. During 2013, none of LPs executive officers served on the Board of Directors or Compensation Committee (or its equivalent) of any other entity, one of whose executive officers served on the Board of Directors or the Committee.
Compensation Discussion and Analysis
This Compensation Discussion and Analysis is intended to provide investors with an understanding of our policies and decisions regarding compensation of our named executive officers for 2013 and 2014. Our named executive officers are:
We continue to see the housing market improve; however, the market is not yet normalized based on historic levels. We implemented changes to our executive compensation that addressed short-term economic conditions and at the same time were supportive of our key strategic goals and objectives to support long-term value creation.
When determining policies and making decisions in relation to the compensation of the companys executive officers, the Committee considers the results of stockholder advisory votes. In the past two years,
shareholders have shown their support of the Committees approach on executive compensation with approximately 95% of the votes cast in 2013, and approximately 92% of the votes cast in 2012. The Committee views these approvals as an endorsement of the Committees philosophy, objectives and methodologies in regards to executive compensation.
Committee Assessment of 2013 Performance
The Committee believes that management, in 2013, not only performed well, but continued to build a foundation for further improved long-term performance. In establishing goals for 2013, we considered the key financial and operating performance measures for the business. We approved a budget for the company that would be EBITDA positive at a time when the market is rebounding following a long weakened economy, We believe that through the market downturn, the company has positioned itself for the long-term benefit of our stockholders. The Committee noted significant areas of financial and operational achievement including:.
Establishment of 2013 Total Direct Compensation
Under LPs executive compensation program, total direct compensation consists of annual cash compensation and long-term equity incentive compensation.
Key Executive Compensation Decisions in 2013
As part of its ongoing review of our executive compensation program in comparison to developing trends, the Committee took several important actions and maintained existing practices that represent strong corporate governance in 2013, including:
The Committee believed these measures were appropriate in light of the current economic environment. Additional details regarding the Committees actions are described throughout the Compensation Discussion and Analysis.
Compensation Philosophy and Objectives
LPs executive compensation philosophy is to provide a competitive total compensation package that aligns the interests of management with those of stockholders. We believe that effective executive compensation programs are critical to LPs long-term success.
In accordance with its charter, the Committee has adopted executive compensation policies that are designed to achieve the following objectives:
Elements of Executive Compensation Program
For 2013, there were no new elements of compensation provided to the named executive officers. The following table provides information regarding the objectives and purposes of each element of the companys executive compensation program:
When setting compensation for our executive officers, the Committee considers total direct compensation, which consists of base salary, annual target cash incentive, and long-term equity incentive compensation elements described above. While the Committee reviews each of these compensation elements, the Committees decisions regarding a particular element are not necessarily impacted by other elements, other than to the extent that they affect total direct compensation. See Total Direct Compensation below.
Review of Peer Group and Survey Data for Comparison Purposes
To ensure that our compensation programs are reasonable and competitive in the marketplace, the Committee compares our programs to those at other similar companies who were selected from the Forest Products and Building Products industry classifications, as well as in relation to benchmark data from a broader group of general industry companies. For 2013, the peer group included the following:
At its August 2013 meeting, the Compensation Committee approved changes to the peer group for the purposes of evaluating compensation for 2014. We believe that our peer group companies reflect similarities in channels, business cycles, and manufacturing expertise, thus providing appropriate benchmark data. The new peer group includes the following companies:
The peer group was developed in consultation with Frederic Cook without consideration of individual company compensation practices, and no company has been included or excluded from our peer group because they are known to pay above-average or below-average compensation. The Committee, in conjunction with its independent compensation consultant, will continue to periodically review the peer group, and the peer group will be revised as appropriate to ensure that it continues to represent similar US organizations with which we compete for executive talent in the marketplace.
The compensation data provided to the Committee also includes size-appropriate compensation data extracted by the Committees independent compensation consultant from several independent survey sources. The survey data presents compensation figures based on information from companies across a broad range of industries without reference to individual companies.
Frederic Cook reviewed three confidential, third-party surveys in order to benchmark LPs executive compensation. All three surveys were general industry surveys, from which aggregate results were compiled using the appropriate revenue bands. Data was then interpolated to LPs 3-year average revenue of approximately $1.3 billion (3-year average revenues were considered to account for significant volatility in revenues experienced in the industry over the last few years). A similar methodology was used for LPs business unit executives using size-appropriate revenue bands and 3-year average LP business unit revenues. The survey
participants were not considered on an individual basis and the names were not disclosed to the Committee. Additional information on each survey is below:
The results from the three surveys were then averaged and blended with peer group compensation data to develop a market consensus.
The compensation comparative data reviewed by the Committee for its deliberations in early 2013 for the coming year was based 50% on information from the then current peer group and 50% on survey data (benchmark data). The benchmark data compared each executives base salary, total cash compensation opportunities (salary and target cash incentive award opportunities), and total direct compensation opportunities (salary, target cash incentive award opportunities, and equity-based awards) for 2013 against projections for 2013 of equivalent items for similar categories of officers from the peer group and survey data. The benchmark data was summarized at the 50th percentile (the target median) for each category of compensation. The Committee believes that use of blended benchmark data improves the quality of comparison because it may be difficult to identify an appropriate match for some officer positions within the peer group alone. In addition, the blended benchmark data reflects the broader industries with which LP competes for management talent.
Total Direct Compensation
In setting 2013 compensation for our executive officers, including our Chief Executive Officer, the Committee focused on total direct compensation, which consists of annual cash compensation (base salary and annual target cash incentive) and long-term equity incentive compensation (restricted stock and SSARs). The Committee considers annual cash and long-term equity incentive compensation both separately and as a package to help ensure that our executive compensation objectives are met.
Consistent with its approach to total direct compensation, the Committee established 2013 targets for the named executive officers. The Committee evaluates both market data provided by Frederic Cook and information on the performance of each executive officer for prior years. In order to remain competitive in the marketplace for executive talent, the target levels for the executive officers compensation elements, including our Chief Executive Officer, are compared to the median of the benchmark data described above. In order to reinforce a pay-for-performance culture, targets for individual executive officers may be set above or below this median depending on the individuals performance in prior years and experience in the position, as well as any applicable retention concerns. The Committee believes that comparing target levels to the median and providing incentive compensation opportunities that will enable executives to earn above or below target compensation depending on whether they deliver above-target or below-target performance on their established goals, are consistent with the objectives of our compensation policies. In particular, the Committee believes that this approach enables us to attract and retain skilled and talented executives to guide and lead our businesses and supports a pay-for-performance culture.
The total direct compensation targets for 2013 for our named executive officers are listed below.
As shown in the Summary of Compensation tables, performance-based compensation (annual cash incentive, performance shares and SSARs) constituted a significant portion of our named executive officers total direct compensation targets. Similarly, a large percentage of the total direct compensation targets were in the form of equity (restricted stock, performance shares and SSARs).
Annual Cash Compensation
In order to attract and retain high caliber executives, we pay our executives an annual cash amount that is considered by the Committee to be competitive in the marketplace. The cash compensation is comprised of base salary and an annual cash incentive payment.
Base Salary. Individual salaries for executive officers are reviewed annually, and salary adjustments are generally effective on March 1 of each year. In determining individual salaries, the Committee considers the market levels of similar positions at our benchmark companies and survey data, the individual executives performance and experience in the position, and our salary increase guidelines. These guidelines permit annual salary increases depending on the executives individual performance during the prior year against results-based objectives established at the beginning of each year, and the executives leadership performance as measured against the following nine leadership competencies:
In addition, executives and other employees may receive an additional increase if warranted because of promotion, retention concerns, or market conditions. In general, an experienced executive who is performing at a satisfactory level will receive a base salary at or around the competitive median of our benchmark companies and survey data. Executives may be paid above or below the median depending on their experience and performance.
The base salaries paid to our named executive officers in 2013 can be found in the Summary Compensation Table below.
At its February 2013 meeting, the Committee approved base salary increases to the executive officers for the first time since 2008, except for increases associated with promotions. Based on the Committees compensation philosophy and the Companys former peer group and industry data, Mr. Stevens salary was increased by 15% (reflecting the first full year as our Chief Executive Officer and to bring him closer to the market median), Ms. Bailey, Mr. Olszewski, and Mr. Wagner received a 4% increase, and Mr. Southern received a 7% increase.
Annual Cash Incentives. Consistent with our compensation objective to support a performance-oriented environment, our executive compensation program includes an annual cash incentive program to motivate and reward executives for their efforts in achieving our annual financial performance objectives and individual performance goals.
Target Payout Levels. The target level for these annual payments is a percentage of the executives base salary, which is compared to the target median of the benchmark data described above and is set as described
under Total Direct Compensation. The range of possible payouts is expressed as a percentage of the target level and is determined based on competitive factors and the goal of encouraging a performance-oriented environment. The range of possible payouts for 2013 was 0 -168% of the target payment amounts as follows:
Establishment of performance goals. Under the program, the annual cash incentive is dependent on performance measured against corporate goals and individual goals established by the Committee and communicated to participants at the beginning of each year. These performance goals are derived from the financial and strategic goals of the company.
Each year, the Committee determines the appropriate split between corporate and individual performance goals. For 2013, the Committee established a 60/40 split between corporate and individual goals. The Committee established this allocation to strike an appropriate balance between aligning the executives with our overall corporate objectives and with individual accountability for each executives area of responsibility.
For the five years, 2009-2013, our performance exceeded the target level four times (2009, 2010, 2012 and 2013) and was below the target level one time (2011). We achieved the maximum performance level in two years (2009 and 2012). From 2009 through 2012, total payout percentages (including individual performance goals) for the current named executive officers ranged from 0% to 168% of the participants target award opportunity, with an average payout percentage over the past five years of 112%.
Achievement of Performance Goals for 2013
Corporate key financial goal. In 2013, to continue to drive participant behavior to meet key strategic goals, LPs annual cash incentive plan focused on Adjusted EBITDA, defined as LPs Adjusted EBITDA for continuing operations for the year ending December 31, 2013, as reported on LPs Form 10K. EBITDA from continuing operations is income (loss) from continuing operations before interest expense, taxes and depreciation and amortization. Adjusted EBITDA from continuing operations is EBITDA further adjusted to exclude other operating credits and charges, gain (loss) on sale or impairment of long lived assets, stock based compensation expense, depreciation included in equity in (income) loss of unconsolidated affiliates and investment income. No amounts would be payable under the corporate components of target award unless the minimum threshold was achieved.
For the year ended December 31, 2013, LPs adjusted EBITDA exceeded its budgeted target by 96%. Information regarding adjusted EBITDA for the year ended December 31, 2013 is set forth in LPs Form 10-K for the year ended December 31, 2013.
Individual performance goals. The Compensation Committee establishes individual performance goals under the Cash Incentive Plan that are intended to challenge the executives to meet or exceed the objectives for the business unit or staff functions for which they have responsibility. Following the end of the year, the executives performance is analyzed to determine whether performance toward the goals was above target, on target or below target. Following a recommendation from our Chief Executive Officer (other than for himself), the Committee then determines a payout percentage for the executive based on this performance assessment. The Committee has the authority, in its sole discretion, to reduce or eliminate the payout of annual cash incentives, despite its determination that performance was at or above target levels, if it finds that paying the awards would result in undue hardship to the company or is not in the best interests of the company.
The individual performance goals established for our Chief Executive Officer for 2013 were as follows:
The individual performance goals established for our Chief Financial Officer for 2013 were as follows:
Ensure that LP remains in compliance with all financial covenants and has adequate liquidity to execute identified strategic plans.
Performance goals for the other Executive Officers include achievement of EBITDA, Safety, Quality and Compliance targets, as well as other business specific objectives.
The performance goals described above were based on financial targets, budgets, and operational goals for LP that the Committee believed could be achieved at the 100% level through strong performance by the executive or the company, as applicable, consistent with managements expectations for 2013.
Our Chief Executive Officer provides the Committee with an assessment of each individuals performance against established goals, other than for himself. At its meeting on January 31, 2014, the Committee determined that the Company exceeded the Adjusted EBITDA target, and that Mr. Stevens and other named executives had exceeded other individual goals.
Payouts for 2013. The following table summarizes the payout opportunities for our named executive officers and the actual incentive payouts paid in 2014 reflecting performance in 2013:
Long-Term Equity Incentive Compensation
The Committee awards long-term equity incentive grants to executive officers as part of their overall compensation package. These awards are consistent with the Committees objectives of aligning our senior leaders with the financial interests of our stockholders, focusing on our long-term success, supporting our performance-oriented environment, and offering competitive compensation packages.
The Committee (in its capacity as the subcommittee for purposes of complying with Section 162(m) of the Internal Revenue Code and short-swing profit liability laws) has determined that awards to executive officers under the Stock Award Plan will be one-third in the form of restricted stock and two-thirds in the form of stock appreciation rights, based on the relative grant date fair values of the two types of awards. Additionally, performance shares will be used in certain situations.
Our primary product is OSB, which is subject to commodity pricing pressures that also have a major influence on our stock price. As a result, stock appreciation rights may have little or no economic value for substantial periods of time when market prices drop below the exercise or base price of the awards, while restricted stock will retain some of its value, thereby serving as a significant executive retention tool. On the other hand, stock appreciation rights have a greater sensitivity to changes in our stock value, thereby aligning the interests of executives more closely with those of our stockholders.
When determining the amount of long-term equity incentive plan awards to be granted to executives, the Committee takes into account the competitive range of the market median data provided by Frederic Cook, individual responsibilities and market factors, as well as total direct compensation, compensation mix, and market practices. For grant purposes, the Committee used discretion in determining the grants, taking into account the Black-Scholes pricing model, the number of shares available for grant and the burn rate (defined as number of shares granted on an annual basis), the value of the grant compared to previous grants, and the market median for competitive positions.
The Committee periodically reviews the valuation method used to calculate the value of equity-based awards. For several years, including 2013, the Committee has relied on the Black-Scholes valuation method for SSARs. In 2012, the Committee relied on a valuation based upon weighted probability of the attainment of certain performance goals for Mr. Stevens performance shares. In future years, it may consider alternative valuation methods. Information regarding performance shares, restricted stock, and SSARs granted to our named executive officers can be found under Summary Compensation Table and Grants of Plan-Based Awards for 2013.
LPs retirement plans are designed to provide retirement benefits at a competitive level compared to the benchmark data and the general manufacturing industry and to serve as a significant retention tool in light of the cyclical nature of LPs commodity business. All full-time salaried U.S. employees participate in LPs 401(k) Plan and, if hired prior to January 1, 2010, LPs Retirement Account Plan. Employees who are in the top two levels of LPs management, including executive officers, participate in LPs Executive Deferred Compensation Plan. Under the plan, participants may defer the receipt of up to 90% of base salary and annual bonuses for income tax purposes. In addition, the plan enables executives and other highly-compensated employees to obtain benefits comparable to those available under the 401(k) plan without being subject to the limits imposed by the Internal Revenue Code on tax-qualified plans.
In February 2009, LP suspended matching contributions under the Executive Deferred Compensation Plan, due to economic conditions and LPs desire to conserve cash. These matching contributions were reinstated January 1, 2013. In addition, annual contribution credits to the Retirement Account Plan were discontinued effective January 1, 2010, and no further contributions will be made under this plan.
LP maintains a Supplemental Executive Retirement Plan (SERP) that provides supplemental retirement pension benefits to selected senior executives. The SERP benefits generally do not vest until an officer has been a participant for five years, and are reduced by the value of employer contributions under LPs other retirement
plans and the Executive Deferred Compensation Plan, as well as a portion of a participants Social Security benefits.
Additional information about LPs retirement plans is provided in connection with the Summary Compensation Table, the Pension Benefits table, and the Nonqualified Deferred Compensation table. The Committee believes that the retirement benefit plans described above are important parts of our compensation program. These plans are consistent with those maintained by the benchmark companies and are therefore necessary in order to remain competitive with them for recruiting and retaining executive talent. Additionally, these plans help encourage retention of our senior executives because their retirement benefits under these plans generally increase for each year they remain employed by us.
We provide our executive officers with limited perquisites, consisting of retirement and life insurance benefits, personal estate and financial planning services provided by independent providers, and an executive health screening program where the Chief Executive Officer can receive a comprehensive physical examination from an independent health care provider. The Committee believes that the good health of the CEO is important to the organization and helps minimize risk to the Company. The personal estate and financial planning program is designed to provide executives with access to knowledgeable resources that understand our compensation and benefit plans and can assist our executives in efficiently and effectively managing their estate, financial and tax planning issues, thus facilitating a more productive use of the executives time, allowing for greater focus on company activities. The Committee eliminated the tax gross-up provision for the personal estate and financial planning beginning in 2012. An annual allowance was established and is only available to those executives who are eligible for and use the financial planning services. Personal benefits provided to LPs executive officers are discussed in more detail in note 5 to the Summary Compensation Table.
Executive Change of Control Agreements
Change of Control Employment Agreements with our executive officers provide for the payment of severance compensation and other benefits if the officers employment is terminated for specified reasons within three years following the occurrence of a change of control of LP. Such reasons include (a) termination by LP other than for cause and (b) termination by the officer because, among other things, his/her assigned duties, position, or authority are diminished in a material way, his/her compensation is substantially reduced, he/she is required to move his/her workplace more than 50 miles, or he/she has substantially increased travel requirements. Key severance benefits under the agreements include:
The Change of Control agreements (other than Ms. Baileys and Mr. Southerns) include a modified excise tax gross-up, under which severance benefits can be reduced up to 10% to avoid any excise tax under Section 280G of the Internal Revenue Code (280G). If a larger reduction would be required to come within the 280G safe harbor, the agreements provide for LP to reimburse the employee in full for all 280G excise taxes and related income taxes imposed on the severance payments.
The Committee believes these agreements are important to motivate our named executive officers to continue to work in the best interests of LP and its stockholders in a potential change of control situation, and to evaluate any possible transactions with the maximum degree of independence and objectivity.
The terms of the agreements are described in more detail under the heading Potential Payments Upon Termination or Change of Control.
In 2010, the Committee determined that any future Change of Control agreements shall not include excise tax gross-up provisions. Therefore, the Change of Control agreements for Ms. Bailey, which was entered into in 2011, and Mr. Southern, which was entered into in 2013, do not contain such a provision.
LP does not have any agreements or plans in place that would provide the named executive officers with severance benefits for termination unrelated to a change of control.
Executive Compensation for 2014
In determining policies and making decisions in relation to the compensation of the companys executive officers subsequent to May 3, 2013, the Committee has considered the results of the stockholder advisory vote on executive compensation that was taken on that date, in which approximately 95% of the votes cast were votes to approve the compensation paid to the companys named executive officers in 2013. The Committee views the results of the stockholder advisory vote as an endorsement of the Committees philosophy, objectives and methodology in relation to the compensation of the companys executive officers. Accordingly, the Committees consideration of these voting results has not significantly changed the Committees approach, policies or decision in relation to the compensation of the companys executive officers, although the Committee continuously seeks to improve the Companys compensation program. The Committee authorized an executive compensation program for 2014 that is designed to achieve our executive compensation objectives. Consistent with our pay-for-performance philosophy, a significant portion of the 2014 total direct compensation targets for the named executive officers consists of performance-based compensation in the form of annual cash incentives and long-term equity incentive compensation.
Base Salary: In its review of executive compensation with the independent compensation consultant, and in light of the peer group analysis, and in light of the Companys performance for 2013 which included exceeding the adjusted EBITDA target by 96%, the Committee approved an increase in base salaries for 2014.
Annual Cash Incentives. In January 2014, the Committee also established objectives for 2014 annual cash incentives payable in 2015 to our executive officers. Depending on actual performance in 2014 against the financial and non-financial goals, 2014 incentive payments could range from zero to 200 % of the corporate portion and zero to 120% of the individual portion of the named executive officers target payments.
As discussed in Annual Cash CompensationAnnual Cash Incentives above, the Committee sets the appropriate split between corporate key financial goals and individual performance goals each year. In 2014 incentive payments will be based 60% on corporate performance and 40% on attainment of individual goals. In addition, individual goals have been established for each named executive officer relating to his or her specific staff function or business unit. Payouts for 2014 for the individual performance are dependent upon the achievement of the corporate goal. The Committee approved an increase in the cash incentive target for Mr. Southern from 50% to 55%.
The Committee awards long-term equity incentive grants to executive officers as part of their overall compensation package. These awards are consistent with the Committees objectives of aligning our senior leaders with the financial interests of our stockholders, focusing on our long-term success, supporting our performance-oriented environment, and offering competitive compensation packages.
The Committee (in its capacity as the subcommittee for purposes of complying with Section 162(m) of the Internal Revenue Code and short-swing profit liability laws) has determined that awards to executive officers under the Stock Award Plan will be one-third in the form of restricted stock and two-thirds in the form of stock appreciation rights, based on the relative grant date fair values of the two types of awards.
When determining the amount of long-term equity incentive plan awards to be granted to executives, the Committee takes into account the competitive range of the market median data provided by Frederic Cook, individual responsibilities and market factors, as well as total direct compensation, compensation mix, and market practices. Individual values are subject to a performance adjustment factor based upon the performance of the executive against identified performance goals and our business performance that increases or decreases the value based on these subjective assessments of the executives performance. The 2014 long-term equity values were established in February 2014. For grant purposes, the Committee used discretion in determining the grants, taking into account the Black-Scholes pricing model, the number of shares available for grant and the burn rate (defined as number of shares granted on an annual basis), the value of the grant compared to previous grants, and the market median for competitive positions.
2014 long-term incentive equity plan award values are listed below.
Additional Policies and Guidelines Affecting Executive Compensation
Use of Independent Compensation Consultant. The Committee engaged Frederic Cook as its independent consultant to assist it in determining the appropriate executive officer compensation in 2013 pursuant to our compensation policies described above. Frederic Cook had no other business relationship with LP and received no payments from us other than fees for services to the Committee and the Nominating Committee. See Corporate GovernanceCompensation Committee for additional information about the use of compensation consultants.
Timing of Long-Term Equity Grants. Our policies and Stock Award Plan require options and SSARs to be granted with an exercise price equal to the closing price of our Common Stock on the date of grant. The Committees practice is to make equity awards at its first Committee meeting in a given year (generally in the last week of January or the first week of February). Committee meeting dates are set by the Committee at least one year in advance.
The Committee administers the 2013 Omnibus Stock Award Plan (the Stock Award Plan), approved by the shareholders on May 3, 2013. Special stock grants and recruiting and retention grants have been made under the Stock Award Plan. Annual grants are made each year at a meeting of the Committee, as described above.
Policy on Incentive Compensation Claw-back. As described above, a significant percentage of our executive officer compensation is incentive-based. The determination of the extent to which the incentive objectives are achieved is based in part on the Committees discretion and in part on our financial results. The Committee has the right to reassess its determination of the performance awards if the financial statements on which it relied are restated. The Committee has the authority to direct LP to seek to recover from any executive officer any amounts determined to have been inappropriately received by the individual executive officer. In addition, the Sarbanes-Oxley Act of 2002 mandates that the chief executive officer and the chief financial officer reimburse us for any bonus or other incentive-based or equity-based compensation paid to them in a year following the issuance of financial statements that are later required to be restated as a result of misconduct. The Committee intends to update its policies following the issuance of rules by the SEC to implement applicable provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Stock Ownership Guidelines. We strongly believe that the financial interests of our executives should be aligned with those of our stockholders. Accordingly, the Committee has established stock ownership guidelines for our executive officers.
Executive officers are expected to own our Common Stock in an amount equivalent to a multiple of their annual base salary. The target amount is a number of shares equal in value to the following multiples of each officers annual base salary: for Mr. Stevens, five times; for Ms. Bailey, Mr. Olszewski and Mr. Wagner three times; and for Mr. Southern two times.
The Committee amended the guidelines to include a provision whereby no shares of Common Stock may be sold by the executive officer until guidelines are achieved, except for shares withheld to cover taxes upon a vesting event. Further, until an executive officer meets the threshold ownership requirement at least 40% of the after-tax proceeds received upon the exercise of stock options and SSARs must be held in the form of Common Stock and may not be sold. Restricted shares and restricted stock units granted under the Stock Award Plan that have not yet vested count toward the ownership guidelines, but shares subject to outstanding stock options and SSARs do not. With the exception of Ms. Bailey, who just completed her second year with the company, all executives have met their ownership requirements.
Insider Trading. Our Insider Trading policy mandates that insiders, including executive officers, review transactions involving our securities with our Chief Financial Officer or legal department prior to entering into the transactions and prohibits a covered officer from pledging or engaging in transactions for the purpose of hedging the economic risk of his or her current or future ownership of shares.
Tax Deduction for Executive Compensation. The federal income tax laws generally limit the deductibility of compensation paid to the chief executive officer and each of the three highest-paid executives (other than the chief financial officer) to $1,000,000 per year. An exception to this general rule exists for performance-based compensation that meets certain regulatory requirements. Several types of executive compensation, including option and SSAR awards to executive officers, are designed to meet the requirements for deductibility. Other classes of executive compensation, including the restricted stock grants described above, may be subject to the $1,000,000 deductibility limit.
Although tax deductibility of compensation is preferred, deductibility is not a primary objective of our compensation programs. In the view of the Committee, meeting the compensation objectives set forth above is more important than the benefit of being able to deduct the compensation for tax purposes.
Risk Assessment of Executive Pay Policies and Practices
The Committee conducted a review of LPs pay practices in 2013 to determine if there were any policies and practices that would be reasonably likely to have a material adverse effect on the company. The review included non-executive and executive pay policies and practices. The non-executive pay practices were reviewed by LPs Risk Council and reviewed by the Committee. In addition, the Committee reviewed executive pay policies and practices. The Committees independent consultant participated in that review and discussion. The Committee found no policies or practices that were reasonably likely to have a material adverse effect on LP and that the design of our programs encourages the achievement of both our short-term and long-term operational and financial goals.
Compensation of Executive Officers
Summary Compensation Table
The table below summarizes the various elements of compensation paid to or earned by each of the named executive officers listed in the table for the three years ended December 31, 2013. Cash incentive awards paid under LPs Amended and Restated Annual Cash Incentive Award Plan (the Cash Incentive Plan) are included in the Non-Equity Incentive Plan Compensation column, which covers non-equity awards that require the satisfaction of pre-established performance goals.
Grants of Plan-Based Awards for 2013
The table below provides information regarding annual cash incentive awards under the Cash Incentive Plan and grants of restricted stock and SSARs under the Stock Award Plan to LPs executive officers during 2013.
Outstanding Equity Awards at December 31, 2013
The table below provides information regarding stock options, SSARs, restricted stock and incentive shares held by the named executive officers at December 31, 2013.
Option Exercises and Stock Vested During 2013
The following table provides information regarding exercise of stock options and vesting of incentive shares with respect to LPs executive officers during 2013.
Pension Benefits for 2013
The following table shows the present value of accumulated benefits for each of the named executive officers under LPs Supplemental Executive Retirement Plan (the SERP) and LPs Retirement Account Plan, in each case assuming retirement by the executive at age 62. Amounts shown in the table were calculated as of a December 31, 2013 measurement date consistent with LPs financial statements and using the same long-term rate of return, discount rate, rate of compensation increase, and mortality rate assumptions used in the financial statements. See Note 13 to LPs audited financial statements included in its 2013 Form 10-K.
Supplemental Executive Retirement Plan
The SERP is a defined benefit plan intended to provide supplemental retirement benefits to key executives designated by LPs Chief Executive Officer and the Committee. Key features of the SERP include:
50% of the executives final average compensation
a fraction equal to: years of credited service (up to a maximum of 15)/15
For example, if a participant had final average compensation of $500,000 with ten years of credited service, his or her annual benefit (subject to reductions for other retirement benefits as described below) would be $166,667 calculated as: $500,000 x .50 x (10/15).
Of the executive officers included in the pension benefits table above, all are vested in their benefits under the SERP, except Ms. Bailey, and Mr. Southern who does not participate in the SERP. As of December 31, 2013, Mr. Stevens was age 61, Ms. Bailey was age 54, Mr. Olszewski was age 57 and Mr. Wagner was age 59. Accordingly, if they had retired as of that date, their benefits would have been subject to reduction as described under Early Retirement Provisions above.
Retirement Account Plan
Executive officers and other salaried employees of LP are eligible to participate in LPs Retirement Account Plan if hired before January 1, 2010. The Retirement Account Plan was frozen to future contribution credits effective January 1, 2010. Plan balances, all of which have vested, will continue to accrue interest as described below. Key features of the Retirement Account Plan include:
Nonqualified Deferred Compensation for 2013
The following table summarizes information regarding participation by the named executive officers in LPs 2004 Executive Deferred Compensation Plan (the Deferred Compensation Plan).
All employees who are in LPs top two levels of management and participate in its Retirement Account Plan and the profit sharing component of the 401(k) Plan are automatically participants in the Deferred Compensation Plan. Key features of the Deferred Compensation Plan include:
Potential Payments Upon Termination or Change of Control
LP has not entered into employment agreements with its executive officers, except for the Change of Control employment agreements described below. Therefore, its executive officers are not generally entitled to severance benefits upon termination of employment in the absence of a change of control. A description of payments and benefits to be provided to LPs executive officers under various circumstances involving termination of employment and/or a change of control follows.
Payments and Benefits upon Termination Prior to Change of Control
Upon termination of an executive officers employment for any reason prior to a change of control of LP, he or she is entitled to receive amounts earned while employed, as follows:
The amounts listed above are referred to as accrued obligations.
If an executive retires with the approval of the Chief Executive Officer at age 60 or older, prior to year end, a pro rata share of his or her target award under the Cash Incentive Plan will be paid based on the date of termination. If an executive dies or if his or her employment is terminated due to disability, he or she will be paid his target award under the Cash Incentive Plan. Upon termination of employment due to death or disability, all awards of restricted stock or restricted stock units (incentive shares) will become fully vested (see Market Value of Shares that have not Vested in the Nonqualified Deferred Compensation for 2013 table), but any stock options or SSARs that were not exercisable on the date of termination will be canceled. Vesting of equity-based awards is not accelerated upon termination for any other reason in the absence of a change of control. Vesting of certain benefits under the SERP and the Deferred Compensation Plan is accelerated upon death or disability, as described under Pension Benefits for 2013 and under Nonqualified Deferred Compensation for 2013.
The aggregate payments and benefits, in addition to accrued obligations, that LPs named executive officers would have received, assuming termination upon death or disability on December 31, 2013, prior to the occurrence of a change of control, were as follows: Mr. Stevens $19,547,689; Ms. Bailey $4,464,393, Mr. Olszewski, $5,484,182; Mr. Wagner, $3,290,263, and Mr. Southern, $2,481,278 representing the sum of the value on that date of restricted stock, incentive shares and SSARs subject to accelerated vesting and the executives target award for 2012 under the Cash Incentive Plan.
Change of Control Employment Agreements
In November 2007, the Compensation Committee approved new Change of Control Employment Agreements with Messrs. Stevens, Olszewski and Wagner, that became effective January 1, 2008. The agreements provide for compensation and benefits following a change of control of LP, including severance payments and benefits in the event the executive officers employment is terminated. In December 2011, the company entered into a Change of Control Employment Agreement with Ms. Bailey on terms consistent with the agreements entered into with Messrs. Stevens, Olszewski and Wagner, except that Ms. Baileys agreement contains no excise tax gross-up provision (versus the modified gross-up provision contained in the earlier agreements.) On December 31, 2012, the Company and Mr. Southern entered into an agreement consistent with Ms. Baileys agreement.
Term. The agreements will terminate two years after LP gives the executive written notice. If a change of control of LP occurs prior to that date, the term will be extended automatically for three additional calendar years beyond the date on which the change of control occurs. This three-year period is referred to as the change of control period.
Definition of Certain Terms. Brief summaries of the definitions of certain terms used in the agreements are set forth below.
Change of control means:
Cause means one of the following actions, as determined by the vote of at least 75% of the directors:
Good reason for purposes of an executives termination of his employment with LP means:
Payments and Benefits While Employed Following Change of Control
During the change of control period and for so long as a covered executive remains employed by LP (or its successor), he is entitled to:
In addition, all outstanding equity-based awards held by LPs executive officers, including stock options, SSARs, restricted stock, and restricted stock units, will become vested or exercisable in full upon a change of control of LP. Also, under the SERP, the executive officer will be fully vested in all benefits whether or not he or she otherwise has five years of participation (see Pension Benefits for 2013). All agreements for equity awards granted prior to November 1, 2007, provide for reimbursement, on an after-tax basis, for any excise tax imposed under 280G on excess parachute payments that is directly attributable to acceleration of vesting or exercisability, plus any related federal, state and local income taxes.
The annual base salary levels and target bonuses for LPs current executive officers during 2013 are disclosed under Executive CompensationCompensation Discussion and Analysis. Information regarding benefits provided to LPs executive officers in addition to salary and cash incentive payments during 2013 appears in the Summary Compensation Table. If a change of control of LP had occurred on December 31, 2013, these salary and bonus levels and benefits would represent the minimum amounts that would have been payable to LPs executive officers in each of 2014, 2015 and 2016, unless their employment was terminated during that three-year period.
The aggregate benefits and payments, in addition to accrued obligations, that LPs named executive officers would have received assuming a change of control occurred on December 31, 2013, without termination of employment, were as follows: Mr. Stevens, $19,547,689; Ms. Bailey $4,464,393, Mr. Olszewski, $5,484,182; Mr. Wagner, $3,290,263, and Mr. Southern, $2,481,278 representing the sum of the value on that date of restricted stock, incentive shares and SSARs subject to accelerated vesting and the executives target award for 2013 under the Cash Incentive Plan.
Payments and Benefits Upon Termination Following Change of Control
The severance compensation and benefits payable under the Change of Control Employment Agreements upon the termination of an executive officers employment vary depending on the reason for termination, as described below.
Termination Without Good Reason; or by LP for Cause. If an executive officer voluntarily terminates his or her employment other than for good reason, or LP terminates his or her employment for cause, during a change of control period, he or she will be entitled to payment or satisfaction by LP of all accrued obligations, but will not be entitled to any other severance or benefits.
Death or Disability. If an executive officer dies or his or her employment is terminated due to disability during a change of control period, the officer or his or her legal representative will be entitled to payment of all accrued obligations and a pro rata amount of the officers target bonus for the year in which the change of control occurs, based on the number of days in the year prior to death or termination. The aggregate payments and benefits, in addition to accrued obligations, that LPs named executive officers would have received, assuming death or termination due to disability on December 31, 2013, during a change of control period, were as follows: Mr. Stevens, $19,547,689; Ms. Bailey $4,464,393, Mr. Olszewski, $5,484,182; Mr. Wagner, $3,290,263, and Mr. Southern, $2,481,278 representing the sum of the value on that date of restricted stock, incentive shares and SSARs subject to accelerated vesting and the executives target award for 2013 under the Cash Incentive Plan. Assuming that the change of control and the termination due to death or disability occurred in the same year, these are the same amounts that an executive would receive upon a change of control without any termination, as described further under Payments and Benefits While Employed Following Change of Control above.
Termination for Good Reason; or Other than for Cause, Death or Disability. If, during a change of control period, an executives employment with LP is terminated by LP (other than for cause, death or disability) or by the executive for good reason, he or she will be entitled to receive the following amounts in a lump-sum payment six months after termination:
The Change of Control Employment Agreements also provide for reimbursement of fees for outplacement services, financial counseling, estate planning and for the continuation of health, disability and life insurance benefits for three years. The named executive officers (other than Ms. Bailey and Mr. Southern) are also entitled to reimbursement for any excise tax imposed on benefits that constitute excess parachute payments, plus any related federal, state and local income taxes, subject to a cut back under which severance benefits can be reduced up to 10% to avoid any excise tax under Section 280G of the Internal Revenue Code (280G). If a larger reduction would be required to come within the 280G safe harbor, the agreements provide for LP to reimburse the employee in full for all 280G excise taxes and related income taxes imposed on the severance payments.
Acceleration of or increases to certain benefits under the terms of the SERP and the Deferred Compensation Plan that are triggered if an executive is terminated following a change of control are described under Pension Benefits for 2013 and Nonqualified Deferred Compensation for 2013.
Potential Pay-Outs to Current Executive Officers
The following table shows potential pay-outs under the Change of Control Employment Agreements and other LP benefit plans assuming that the employment of a current executive officer was terminated following a change of control of LP, either by LP for reasons other than cause, death or disability, or by the executive for good reason, and that termination occurred on the last business day of 2013.